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Lost generation of savers faces poverty in retirement

People aged 35 to 45 are at risk of saving too little for their retirement.


by Michelle McGagh on Sep 30, 2015 at 08:00

Lost generation of savers faces poverty in retirement

If you think young people aren’t saving, you’re wrong; a lost generation of savers aged 35-to-45 are the worst prepared for retirement.

A swathe of people stuck between millennials and babyboomers are failing to save enough for their retirement.

Babyboomers have retirement sorted thanks to more generous workplace pensions, with many benefiting from defined benefit (DB) schemes that pay out a multiple of years worked and a percentage of final salary as income for the rest of an employees’ life.

And millennials are saving early thanks to auto-enrolment which has automatically placed workers into pension schemes, so should be in a strong financial position when they reach retirement with decades of savings behind them.

However, Holly Mackay of financial website Boring Money, has warned that those aged 35-to-45 are losing out because although they are saving into workplace pensions, they are not saving enough considering the reduced amount of time they have until retirement.

A survey by Mackay found that of the 35-to-45 age group, just 22% were saving into a private pension – the lowest of any age group.

‘There is a lost generation of 35-to-45 year olds who are rubbish with money,’ she said. ‘You have the swotty millennials who are saving money and planning, and the babyboomers, [but those in the middle] assume that the job is done because they are making workplace contributions but the contribution rates are too low.’

Research by consultants Hymans Robertson, which operates a traffic light system to assess whether individuals in workplace schemes are on track for the retirement they want, shows 68% of people are on a 'red' warning.

Lee Hollingworth, head of DC consulting at Hymans Robertson, said the concerns about a lost generation of savers had been ‘niggling’ for some time and while those in their 20s who have been auto-enrolled have ‘a fighting chance’ of achieving the retirement they want, those in their ‘30s to mid-40s’ are a concern

‘They have only known DC scheme and only have DC schemes and they will not provide adequate incomes,’ he said. ‘You have got a generation…and they think they will be OK [because they are saving into a workplace pension]…but they don’t know what they need to save – they are drifting towards retirement in blissful ignorance.’

Caught in the middle

Jamie Jenkins, pension expert at Standard Life, agreed that there is an emerging ‘lost generation’ that has fallen between the gap of millennials and babyboomers.

‘These are people that have not benefited from years of DB provision that so many babyboomers had but for who auto-enrolment had not started let alone matured,’ he said.

Jenkins said that prior to auto-enrolment, the Department for Work and Pensions estimated 10 million were not saving for retirement and now, despite more people saving, there are between 10 million and 13 million people who are not saving enough even with auto-enrolment.

He said the problem goes back to 2000 and the ‘significant decline of DB pensions’ that was not replaced by large enough defined contribution contributions.

‘In 2000…we had people coming into the workforce without significant defined contribution schemes or who did not join and missed out on 10 to 15 years of pension saving,’ said Jenkins.

And the problem is set to persist because those aged 35-to-45 who are now saving into a pension via auto-enrolment are not saving enough.

‘Contribution rates are still low and,’ said Jenkins, adding that auto-enrolment happened too late for the lost generation to get their pension size to a ‘decent level’.

The solution

The only solution for those who fall into the gap in the middle of two generations is to save more into workplace pensions now, top up later, or work longer.

‘We will see average contribution rates go down before they go up due to more people being auto-enrolled which will bring the average down,’ said Jenkins. ‘The average pension pot will also go down before it goes up and the people in the middle [of the millennials and babyboomers] will be the ones who will have smaller pots.

‘It’s not an easy fix because we not in an environment where people are in a position to make large pension contributions because there hasn’t been huge pay rises – this is a long-term issue.’

For Hollingworth, part of the problem was managing individual expectations, which may have been built up by seeing parents and grandparents retiring with DB pensions, good income, and even taking early retirement.

However, making changes now can help the lost generation to get closer to a comfortable retirement.

‘We need moderate change,’ said Hollingworth. ‘If you are 30, you have 35 years to fund your pension. It may require you to make modest increases in contributions – maybe 2% to 3% - and change your expectations of when you want to retire. A lot of schemes are set up to run to 65 but your real retirement age will be, at best, you state pension age, which will be 68. Tweaking retirement age [alongside contributions] will make a substantial difference.’

5 comments so far. Why not have your say?

Neil M2

Sep 30, 2015 at 14:57

What's the point in saving a LOT of money into a pension, when the government are going to tax it at 55% if you accumulate more than £1,000,000, which is a value that will be reached easily over 40 years by young savers due to compound investment returns.

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Law Man

Sep 30, 2015 at 15:14

While there has not been a climate encouraging the 35/45 to have a pension, there must be some personal responsibility. I did not have an enmployer's scheme after age 33 so I took out personal pensions. Next year I shall not be rich but I shall be comfortable.

Yes, this did mean not buying expensive holidays and new cars. And yes, I appreciate some earn less than I did and so can afford only modest premiums.

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Frank Frank

Sep 30, 2015 at 15:38

Advertising copy, masquerading as social comment.

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Sep 30, 2015 at 16:30

Too many changes to the system all the time. Lack of control and lack of information over how the money that goes into my pension will be taxed and how I will be able to take it out in 30 years time makes me hesitant to put much in.

Who knows what tax charges and restrictions the government of the day might decide to apply to my pension pot once I get to retirement. As the saying goes, a bird in the hand in better than two in the bush!

If the rules were fixed forevermore for each lump of money once it had been contributed then things would be different, although I can't see any government wanting to restrict themselves to that!

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Oct 03, 2015 at 11:35

Tell that to the steel workers on Teesside who have been made redundant twice in five years.

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